Development Finance Explained: Typical Loan Amounts and 100% Funding Options

Property development finance is designed to fund projects to convert or refurbish property, or to build new homes from the ground up. It works very differently from a standard mortgage as lenders will look at the total cost of the scheme and the Gross Development Value (GDV) to assess what the completed project will be worth, rather than just its current value.

If you’re embarking on a new project, understanding how much you can borrow and when it might be possible to fund the entire project with little (or no) funds of your own is essential.

Typical lending limits

Every lender has their own criteria, however many projects will fall within these broad ranges:

• Land or site acquisition – 50% to 75% of the purchase price

• Build costs – often up to 100% of the build costs, released in stages as the works progress

• Loan vs GDV – typically loans are capped at 60% to 70% of the GDV, although this can be occasionally higher for strong proposals

As an example, a site may cost £900,000 to buy, with estimated build costs of £1,000,000 and a GDV of £3m. A lender might advance 60% of the purchase price (£540,000), plus 100% of the build costs, therefore lending £1,540,000. This is just over 50% of the GDV.

Can I borrow 100% development finance?

Yes, in some cases 100% development finance is available, meaning that the lender funds both the purchase of the land and the full construction or works costs. This is usually structured as a joint venture and lenders may charge a higher interest rate, share in profits, or both. To achieve this a development would need to show experience and a strong proposal:

• A proven track record showing successful completion of similar projects

• Full planning permission, as lenders typically won’t take planning risk

• A proposal with strong profitability – typically 25%+ projected margin

• Additional security such as other property or assets as collateral, as well as personal guarantees

• A robust cost plan, schedule or work and cash-flow forecast, supported by an experienced project team and/or consultants

Steps to maximise borrowing of development finance

To maximise the development finance available to you, there are some steps that you can take to give lenders comfort in your proposal.

1. Securing planning consent early and with minimal conditions removes risk

2. Demonstrating strong profitability with a clear business plan including evidence of GDV (comparables) and cost plans with sensitivity analysis in case of unexpected scenarios

3. Present your track record clearly, including details of previous successful schemes, or partner with an experienced developer who can provide the same

4. Be prepared to offer additional security, such as other property or assets

5. Use a special-purpose vehicle (SPV) to ring-fence the project and give lenders a clean structure and entity to lend to

6. Work with an experienced broker, like

   , who can assess all the options and which lenders will provide the best terms

Costs to budget for

Higher leverage can mean higher costs, as lenders balance heightened risk. Lenders will charge interest monthly on any loan drawdowns, often 0.55% to 0.90% (7% to 11% annually), as well as arrangement fees typically 1-2% of the loan. Lenders may also charge exit fees, legal, valuation and monitoring fees, which should all be clearly outlined to you before you proceed. Including these costs in your initial development appraisals will ensure your proposal is robust and well-considered, without unexpected costs suddenly eroding your profits.

Key takeaways

Standard development finance will usually cover up to 100% of the build costs and can cover land acquisition. 100% development finance is possible when well-planned, profitable and proposed by an experienced developer offering additional security. Strong planning, a realistic budget and a proven track record are usually the best ways to increase leverage and secure the best possible terms.

If you need a tailored estimate and options sourced for your next project, speak to a specialist development finance broker who can connect you with the right lenders for your scheme.